What Does Prorate Mean With Auto Insurance?

by Sara Mahuron

Make sure your new purchase is fully protected from day one.

Too bad your auto insurance doesn't come with it's own industry-lingo dictionary. Without one, policyholders are often left to surmise what is meant -- which can be risky when you must interpret something as serious as your insurance policy. When your auto insurance premium is prorated, the premium for your policy is proportionately calculated based on the length of time the policy is active. The period the policy was in effect is different from the normal billing period, so the price you pay is adjusted to reflect this time difference.

Reasons for a Prorated Premium

Auto insurance premiums are generally prorated whenever policyholders change their policy. This can include getting a new policy, making changes to your existing coverage, changing the vehicles or drivers on the policy or qualifying for different discounts on the policy. Expect a prorated adjustment to your insurance premium if you are buying a new car or switching insurance companies. If your insurance provider bills in advance, you may pay a prorated premium amount, plus the first full premium amount on your first bill.

Identifying a Prorated Charge

If you were not told about the proration up front or you have forgotten this detail, you can clearly identify the prorated fee on your billing statement. Look for a premium amount that is less than your regular premium. Generally, this prorated amount is explained on your billing statement with billing dates. For example, if your auto insurance is normally billed quarterly, from January 1 through March 31, your bill may show the billing dates of February 13 through March 31 because you began coverage on February 13.

Estimating the Prorated Premium

If you want to estimate the prorated amount of an auto insurance premium, you need to know how your policy is normally billed: monthly, quarterly, twice a year or annually. Once you know this, you can determine the duration of the billing cycle for which you will be billed. For example, if you pay your auto insurance premium monthly, calculate your daily rate by dividing the monthly premium amount by the number of days in the month. Then count how many days you will be covered that month and multiply this number by the daily rate. This gives you a general idea of what to expect, but your insurer can provide you with the exact amount.

Prorated Refund

A prorated auto insurance premium does not only apply to your billing statement, it can also apply to a refund of any unused premium. If you cancel a policy because you sell your car or change insurance companies, leaving your current policy before the term date, then you will likely receive a refund for the residual of your premium -- the amount you already paid for the insurance policy for the period that the company did not cover the vehicle. You will receive a refund for the number of days that remained in the billing cycle, minus any fees or financial terms outlined in your policy.

About the Author

Sara Mahuron specializes in adult/higher education, parenting, budget travel and personal finance. She earned an M.S. in adult/organizational learning and leadership, as well as an Ed.S. in educational leadership, both from the University of Idaho. Mahuron also holds a B.S. in psychology and a B.A. in international studies-business and economics.